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CIRCULAR

Guiding the criteria and conditions for establishment and operation of audit enterprises

Pursuant to the November 29, 2005 Enterprise Law;

Pursuant to the Government's Decree No. 77/2003/ND-CP of July 1, 2003, defining the functions, tasks, powers and organizational structure of the Finance Ministry;

Pursuant to the Government's Decree No. 105/2004/ND-CP of March 30, 2004, on independent audit;

Pursuant to the Government's Decree No. 133/2005/ND-CP of October 31, 2005, amending and supplementing a number of articles of the Government's Decree No. 105/2004/ND-CP of March 30, 2004, on independent audit;

The Finance Ministry hereby guides the criteria and conditions for establishment and operation of audit enterprises as follows:

I. GENERAL PROVISIONS

1. Audit enterprises guided in this Circular include enterprises established and operating under the provisions of law in the forms of limited liability company, partnership or private enterprise.

Audit limited liability company means a limited liability company with two or more members providing audit services and other related services.

Audit partnership means a partnership providing audit services and other related services.

Audit private enterprise means a private enterprise providing audit services and other related services.

2. Audit limited liability companies, audit partnerships and audit private enterprises shall be established and operate according to the provisions of enterprise law, Decree No. 105/2004/ND-CP of March 30, 2004, Decree No. 133/2005/ND-CP of October 31, 2005, the Finance Ministry's Circular No. 64/2004/TT-BTC of June 29, 2004, guiding the implementation of a number of articles of Decree No. 105/2004/ND-CP, and the guidance on establishment and operation criteria and conditions in this Circular.

3. Individuals who are not allowed to become members of audit limited liability companies, partners of audit partnerships or owners of audit private enterprises include:

a/ Individuals who are not allowed by law to participate in business activities;

b/ Individuals who are working for other enterprises which provide audit services.

4. Business registration dossiers of audit limited liability companies, audit partnerships and audit private enterprises: Apart from dossiers specified by law, there must be notarized copies of auditor's certificates of directors (or general directors) granted three years before the date of business registration and notarized copies of at least two auditor's certificates of two other persons.

II. AUDIT LIMITED LIABILITY COMPANIES

1. Criteria and conditions for establishment and operation of audit limited liability companies:

a/ The establishment and operation of audit limited liability companies shall comply with the provisions of Articles 20 and 23 of Decree No. 105/2004/ND-CP and Article 1 of Decree No. 133/2005/ND-CP;

b/ Members of audit limited liability companies may be either individuals or organizations. The number of members of an audit limited liability company must be between two and fifty;

c/ Members being individuals must satisfy the criteria and conditions specified by law and at Point 2, Part II of this Circular;

d/ A member being an organization must nominate a person as its representative. The representative at law of an organization member must satisfy the criteria and conditions specified by law and at Point 3, Part II of this Circular. Organizations being enterprises currently operating in Vietnam and providing audit services and organizations which are not allowed by law to participate in business activities shall not be allowed to become members of audit limited liability companies;

e/ At the time of establishment and in the course of operation, an audit limited liability company must have at least 3 persons possessing auditor's certificates, including its director (or general director).

2. Criteria and conditions for members being individuals:

a/ Having professional accountancy and audit ethics as required by the profession; being honest and upright, and having a good sense of observance of law;

b/ Members appointed as company directors (or general directors) must possess auditor's certificates and have actually practiced audit for at least 3 years as from the date their auditor's certificates are granted; must contribute at least 10% of the charter capital; and must neither concurrently participate in the management and administration of nor sign labor contracts with other organizations or agencies.

c/ Directorate members who are directly in charge of audit services must possess auditor's certificates. In case an audit limited liability company has registered for the provision of other services which require, under law, practice certificates (such as accounting service, asset valuation service, etc.), directorate members directly in charge of such services must possess appropriate practice certificates as prescribed by law;

d/ Having contributed capital to their company;

e/ Members being individuals who are required to possess practice certificates must personally work at the company.

3. Criteria and conditions for representatives at law of members being organizations:

a/ Having professional accountancy and audit ethics as required by the profession; being honest and upright, and having a good sense of observance of law;

b/ Having the power of attorney given by their organizations to represent them in exercising rights and obligations as prescribed by law.

c/ A representative who is appointed as the company director (or general director) must possess an auditor's certificate and have actually practiced audit for at least 3 years as from the date his/her auditor's certificate is granted, must neither concurrently participate in the management and administration of nor sign labor contracts with other organizations or agencies. An organization-member must contribute at least 10% of the charter capital;

4. Members of an audit limited liability company must not transfer or donate their capital contributions to, or use their capital contributions to pay debts for, non-members who fail to satisfy the membership criteria and conditions specified by law and at Points 2 and 3, Part II of this Circular, unless otherwise provided for by the company's charter not in contravention of the provisions of this Circular.

5. Where an audit limited liability company's members being individuals die or are declared dead by the court, their heirs by will or by law may become the company's members if they satisfy the membership criteria and conditions specified by law and at Points 2 and 3, Part II of this Circular, unless otherwise provided for by the company's charter not in contravention of the provisions of this Circular. Where the heirs fail to satisfy the specified membership criteria and conditions of audit limited liability companies, they may request the company to refund capital contributions according to the provisions of law.

III. AUDIT PARTNERSHIPS

1. Criteria and conditions for establishment and operation of audit partnerships

a/ The establishment and operation of audit partnerships shall comply with the provisions of Articles 20 and 23 of Decree No. 105/2004/ND-CP and Article 1 of Decree No. 133/2005/ND-CP;

b/ Audit partnerships have general partners and limited partners. The number of general partners of a partnership must be at least two. General partners must be individuals. Limited partners may be either organizations or individuals.

c/ General partners must satisfy all the criteria and conditions specified by law and at Point 2, Section III of this Circular.

d/ At the time of establishment and in the course of operation, an audit partnership must have at least three persons possessing auditor's certificates, at least two of whom are general partners, including the director (or general director).

2. Criteria and conditions for general partners:

a/ Having professional accountancy and audit ethics as required by the profession; being honest and upright, and having a good sense of observance of law;

b/ General partners appointed as partnership directors (or general directors) must possess auditor's certificates and have actually practiced audit for at least 3 years as from the date their auditor's certificates are granted; must contribute at least 10% of the charter capital; and must neither concurrently participate in the management and administration of nor sign labor contracts with other organizations or agencies.

c/ General partners who are directly in charge of audit services must possess auditor's certificates. In case an audit partnership has registered for the provision of other services which require, under law, practice certificates (such as accounting service, asset valuation service, etc.), general partners directly in charge of such services must possess appropriate practice certificates as prescribed by law;

d/ Having contributed capital to the partnership;

e/ General partners who are required to possess practice certificates must personally work at the partnership.

3. General partners who are newly admitted into a partnership must satisfy the criteria and conditions for general partners specified by law and at Point 2, Part III of this Circular and be accepted by the members' council.

4. Where general partners die or are declared dead by the court, their heirs by will or by law may become the partnership's general partners if they satisfy the criteria and conditions for general partners specified by law and at Point 2, Part III of this Circular and are accepted by the members' council. Where the heirs fail to satisfy the specified criteria and conditions, they may become limited partners or request the partnership to refund capital contributions according to the provisions of law.

5. Where a partnership's limited partners being individuals die or are declared dead by the court, their heirs by will or by law shall become such partnership's limited partners.

6. A general partner shall be expelled from a partnership after his/her expulsion is consented to by all other partners, or in case he/she violates the law or the professional accountancy or audit ethics and has his/her auditor's certificate is withdrawn by the Finance Ministry.

7. When general partners, due to their old age and poor health or otherwise, are unable to continue practicing audit, they may allow other persons to take over their rights and obligations and therefore become general partners if such persons satisfy the criteria and conditions for general partners specified by law and at Point 2, Part III of this Circular and are accepted by the members' council.

8. General partners may become limited partners but shall still have to bear responsibility prescribed by law for their work during the period they were general partners. Limited partners being individuals may become general partners if they so wish, satisfy all the criteria and conditions for general partners specified by law and at Point 2, Part III of this Circular, and are accepted by the members' council.

9. The charter of a partnership must lay down the specific principle for nominating general partners to represent the partnership in signing audit reports (like the general partner appointed as the director (or general director) or audit practitioners) and audit practitioners to conduct an audit.

IV. AUDIT PRIVATE ENTERPRISES

1. Criteria and conditions for establishment and operation of audit private enterprises:

a/ The establishment and operation of audit private enterprises shall comply with the provisions of Articles 20 and 23 of Decree No. 105/2004/ND-CP and Article 1 of Decree No. 133/2005/ND-CP;

b/ At the time of establishment and in the course of operation, an audit private enterprise must have at least 3 persons possessing auditor's certificates, including its director (or general director);

c/ The owner of an audit private enterprise must act as its director (or general director). The owner of an audit private enterprise must possess an auditor's certificate and have actually practiced audit for at least 3 years as from the date his/her auditor's certificate is granted. A private enterprise's owner must neither concurrently participate in the management and administration of nor sign labor contracts with other organizations or agencies.

2. Criteria and conditions for members of the directorate of an audit private enterprise:

a/ Having the professional ethics of accountancy and audit as required by the profession; being honest and upright, and having a good sense of observance of law;

b/ Where an audit private enterprise has registered for the provision of other services which require, under law, practice certificates (such as accounting service, asset valuation service, etc.), directorate members directly in charge of such services must possess appropriate practice certificates as prescribed by law.

V. TRANSFORMATION OF AUDIT COMPANIES

1. Audit enterprises owned by the State (state-owned enterprises, joint-stock companies transformed from state enterprises through equitization, one-member limited liability companies), when being transformed into audit enterprises defined in this Circular, shall work out transformation plans which must be approved by competent agencies on a case-by-case basis and the following principles:

a/ The inventory and determination of the value of enterprises shall comply with the provisions of law on transformation of state companies into joint-stock companies;

b/ The transformation must ensure the establishment and operation criteria and conditions specified in this Circular.

c/ The transfer of the state capital amounts at audit enterprises having such state capital amount may be conducted through public auctions according to the provisions of law on reorganization and transformation of state companies into joint-stock companies.

2. The transformation of audit joint-stock companies established before the effective date of Decree No. 105/2004/ND-CP into audit limited liability companies, audit partnerships or audit private enterprises must ensure the criteria and conditions specified in this Circular and comply with decisions of the shareholders' general assembly; or abide by the principle that the dissolution of old companies is effected concurrently with the establishment of new ones.

3. If audit limited liability companies or audit partnerships established before the effective date of this Circular are not considered having satisfied the specified criteria and conditions, they must restructure their organization, satisfy the criteria and conditions specified in this Circular, and make additional business registration according to current regulations.

4. The transformation of state-owned audit enterprises, audit limited liability companies or audit joint-stock companies into audit limited liability companies, audit partnerships or audit private enterprises, and the organizational restructuring of audit limited liability companies or audit partnerships in accordance with the provisions of Points 1, 2 and 3, Part V of this Circular must be completed before April 21, 2007, according to the provisions of Point 3, Article 20 of the Government's Decree No. 105/2004/ND-CP of March 30, 2004, on independent audit.

VI. ORGANIZATION OF IMPLEMENTATION

1. This Circular takes effect 15 days after its publication in "CONG BAO."

2. Ministries, ministerial-level agencies, government-attached agencies, provincial/municipal People's Committees, audit enterprises and concerned organizations and individuals shall have to implement this Circular.

Any problems arising in the course of implementation should be reported to the Finance Ministry for study and settlement.